The government economic taskforce headed by President Ebrahim Raisi approved new measures Monday to help revive the long-struggling capital market -- namely reducing tax on share trade and injecting another 110 trillion rials ($335 million) into the Capital Market Stability Fund (CMSF).
In a meeting Monday Raisi instructed the Plan and Budget Organization to transfer 50 trillion rials ($152.3 million), raised from taxation of stock trade in the last fiscal year (ended March) to the CMSF "as soon as possible", SENA reported.
The government also approved a proposal for reducing the tax on trading shares by 80%, though the measure needs to be approved by the heads of three branches of power (executive, judiciary, legislative).
Tax on stock is paid on the purchase or sale of stocks, bonds, or other financial contracts like options and derivatives. Tax on stock trade currently is 0.5% of the total value of a deal. It is different from capital gains tax that is commonly levied on share profit in most countries but not in Iran.
Stock and share traders paid 16.2 trillion rials ($49.3 million) tax in the first quarter (March 20-June 21) of the current fiscal year, up 74% on Q1 last year.
As per the 2022-23 budget, the government expects to make 104.2 trillion rials ($317m) in income from stock tax.
The government has decided to use tax revenue from share trade to invest in the share market in the framework of its declared support measures to revive the bearish stock market.
Income from tax on share transactions is to be injected into the CMSF to help address the liquidity crunch in the stock market, especially when selloff pressure is high and there are few buyers.
NDFI Commitments
During the meeting Raisi called on the National Development Fund of Iran to deposit extra resources with the CMSF, which amounts to 60 trillion rials ($182.8 million).
The payment is in line with a support plan announced last year. In late 2021 the NDFI agreed to give $200 million to the CMSF.
The CMSF was created in 2017 to help address the credit crunch in the bourse. It has a mandate to support the beleaguered market.
As per CMSF articles of association, it is fed via three main financial sources, namely direct government investment, NDFI investment and income from trading fees charged by the Tehran Stock Exchange and the junior exchange Iran Fara Bourse. As per rules, 30% of the income from stock trade fees is deposited with the CMSF.
Rules stipulate that the NDFI invest 1% of its resources in the CMSF. The money is a loan at 12% to be repaid in five years.
Monthly Report
Funds planned to be injected into the market is twice the monthly outflow of capital from the stock market, SENA, the news outlet of the Securities and Exchange Organization said.
Eghtesadnews reported that the net capital outflow of the market in the month to Oct 22 reached 46 trillion rials ($140m) in 18 trading session.
The exiting pattern in the market has raised alarm about the liquidity crunch due to the increasing aversion of retail traders to put money in the share market.
Reports indicate decline in the stock exchange persists. The main index of Tehran Stock Exchange, TEDPIX, shed more than 46,281 points during the month to Oct. 22 and plunged 3.41% to settle at 1,308,960 points last month.
With the recession expected to linger in the foreseeable future, TEDPIX logged a fifth monthly loss after registering a 4.3% decline the month before.
Under the bullish run, the TSE’s main index gained more than 14% in the first two months of the year starting in late March before returning to the bear market.
